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Yum! Brands Eyes Recovery in China, Unveils Plan

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After being plagued by chicken issues for quite some time now, Yum! Brands, Inc. (YUM - Free Report) has come up with an aggressive and comprehensive strategy to reinstate the KFC brand in China. The company had announced this strategy in Feb 2014. It recently unveiled a new menu for its 4,600 KFC restaurants across 900 cities and introduced innovative marketing strategies aimed at improving brand awareness and traffic.

Based on consumer preference, this new menu comprises 15 products of which 10 are new and 5 are re-launched versions of popular items. With two more chicken sandwiches, three new rice dishes, four snacks and six drinks or desserts, customers will now have 66 options altogether to choose from. Going forward, KFC China intends to continue with such menu additions every year.

The company is well aware of the fact that serving good food alone would not suffice to reinvigorate sales. Therefore, its new marketing initiatives include redesigned product packaging, roll-out of a new store design, and a number of digital initiatives including a new mobile app, an e-menu and a prepay take-out option. These initiatives would help to draw customers.

Another interesting marketing initiative undertaken by the company is the promotion of its menu by Chinese celebrities. This will likely boost the demand for items endorsed by them as people will be influenced by the preference of their favorite celebrities.

China has been the largest contributor to Yum! Brands’ revenues in the past few years. According to British Broadcasting Corporation, KFC was named the number one foreign brand in China in 2013. It opened 428 new KFCs in China in 2013 and has the largest home delivery business in the country.

However, Yum! Brands’ China Division has been performing poorly due to a number of issues in the past few quarters. In Dec 2012, the Division faced an allegation regarding the quality of chicken supplied to its KFC restaurants. The resultant adverse publicity has been affecting the division’s performance since fourth-quarter 2012. Moreover, the recurrence of avian flu continues to be a concern.

Nevertheless, driven by its initiatives, the company expects to bounce back in 2014 and register a 20% increase in earnings per share. The company has also resorted to an organizational restructuring to focus on high-potential markets and boost overall operations, signaling an effort to turn around in the coming quarters.

The company presently has a Zacks Rank #2 (Buy). Other players in the restaurant industry, which look attractive at current levels, include Ignite Restaurant Group, Inc. , Famous Dave's of America Inc. and The Wendy's Company (WEN - Free Report) . While Ignite Restaurant and Wendy's sport a Zacks Rank #1 (Strong Buy), Famous Dave's of America carries a Zacks Rank #2 (Buy).


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